Robert Reich on Corporations

Former Secretary of Labor; Democratic Challenger MA Governor

Hedge-funds receive $1B each in tax loopholes

The latest tax-reform bills are far from perfect--they leave open a number of loopholes and would only recoup a very small fraction of the $100 billion that corporations and wealthy individuals are siphoning off the U.S. Treasury.
But the bills would end one more egregious example of the tax policy double standard, finally forcing hedge-fund managers to pay taxes at the same rate as everybody else.
As the law stands now, their income is considered "carried interest" and is accordingly taxed at the capital gain rate of 15 percent.

According to former labor secretary Robert Reich, in 2009 "the 25 most successful hedge-fund managers earned a billion
dollars each." The top earner clocked in at $4 billion. Closing this outrageous loophole would bring in close to $20 billion in revenue--money desperately needed at a time when teachers and nurses and firemen are being laid off all around the country.

Supercapitalism: aggregated corporate power hurts citizens

Since the 1970s, large firms became far more competitive, global, and innovative. Something I call supercapitalism was born. In this transformation, we in our capacities as consumers and investors have done significantly better. In our capacities as
citizens seeking the common good, however, we have lost ground.

Consumer power became aggregated and enlarged by mass retailers like Wal-Mart that used the collective bargaining clout of millions of consumers to get great deals from suppliers.
Investor power became aggregated & enlarged by large mutual funds.

As a result, consumers & investors had access to more choices and better deals. But the institutions that had negotiated to spread the wealth and protect what citizens valued in common
began to disappear. Labor unions shrank; regulatory agencies faded; CEOs could no longer be corporate statesmen. And as the intensifying competition among companies spilled over into politics, elected officials became less concerned about the Main Street

Corporations have less power now than 1970s oligopolies

Large corporations have less economic power now than they had 3 decades ago. Then, the US harbored 3 giant auto companies that informally coordinated prices and investments. Now at least 6 major companies produce cars in the US, and competition among
them is fierce.

Three decades ago there were only 3 major TV networks, one phone company, and a handful of movie studios. Today, thousands of businesses compete intensely where telecommunications, high-tech, and entertainment overlap.
Look almost anywhere in today's economy and you find the typical company has less market power than the typical company of three decades ago.

To be sure, some corporations are very large and many have global reach. But the world economy contains
far fewer oligopolies than it did decades ago, and almost no monopolies apart from those created or maintained by government. The power and impetus that once came from the giant corporation--the planning and execution of large-scale production--are gone.

We can sacrifice economic benefits for social good

Just as all games require rules to define fair play, the economy relies on government to set the economic ground rules. If the government wanted to do something about the means Wal-Mart employs, it could change the current rules.
In theory, it could enact laws to make it easier for all employees to unionize, require all large companies to provide their employees with health insurance and pensions, enact zoning regulations to protect
Main Street retailers from the predations of big-box retailers, and raise the minimum wage high enough to give all working people a true "living" wage. All such measures would have the likely effect of causing Wal-Mart and other large companies across
the board to raise their prices and reduce return to investors.

Personally, I'd be willing to sacrifice some of the benefits I get as a consumer and investor in order to achieve these social ends--as long as I knew everyone else was, too.

Stop companies from pursuing profits that hurt public

Government must be free to stop companies from pursuing profits in ways that harm the public. Big companies that use their political muscle to prevent government from policing this line are, in effect, setting themselves up for much more intrusive forms
of public vigilance. Enron is a case in point. But here's the good news--and it lies at the opposite extreme from Enron: There's growing evidence that good corporate citizenship enhances long-term profits.

Source: I'll Be Short, by Robert Reich, p. 38
, May 2, 2002

Post-9-11: Help out-of-work staff instead of airline bailout

The airline bailout was notable not only for its size (its price tag exceeded the combined market value of United, American, Delta, Northwest, US Airways, America West, and Continental), but also the speed and near unanimity with which it was granted.
The sharp drop in business in the wake of September 11 surely imperiled airline balance sheets. But whatever might have happened to airline COMPANIES,
America's aviation SYSTEM--aircraft, telecom equipment, pilots, and crews--wasn't about to disappear. If some companies went bankrupt, other companies would buy their equipment and hire their employees.
Public funds could be put to better use helping airline employees find new jobs outside the industry, get retrained, and relocate themselves and their families.

Under Clinton, executive pay ratio rose from 40:1 to 400:1

Increasingly, executive "compensation packages" are linked to share prices through generous stock options and rich bonuses if targets are met. My colleagues and I in the Clinton administration inadvertently contributed to this trend. Clinton pledged
that no company should be able to deduct from its corporate income taxes executive compensation in excess of $1 million, unless the extra inducement was linked to "performance"--that is, an increase in the company's share price. Stock options and bonuses
thereafter exploded. Raising the share price became paramount, whatever that required. In 1980, the typical chief executive of a large American company took home about 40 times the annual earnings of a typical worker; in 1990, the ratio rose to about
85 times. By the end of the century, total executive compensation rose from an average of $1.8 million to an average of $12 million--resulting in compensation packages that averaged 419 times the earnings of a typical production worker.

CIA "found" communist plots to help 1950s corporations

Under a World Bank controlled by Americans, development assistance could be focused precisely where America's core corporations saw the greatest opportunity. And so long as the recipients of America's foreign aid used it to buy American exports,
core corporations could venture into global trade confident of receptive markets.

Nor was it mere coincidence that the CIA discovered communist plots where America's core corporations possessed, or wished to possess, substantial holdings of
natural resources. When, in 1953, an anticolonial Iranian nationalist movement led by Mohammed Mossadegh challenged the power of the shah and seized the Anglo-Iranian Oil Company, the CIA secretly channeled millions of dollars to army officers
dedicated to returning the shah to power; once their objective had been fulfilled, generous access to Iranian oil was granted to Gulf, Texaco, Mobil, and Standard Oil of NJ.

Protectionism benefits corporations, not consumers

By the late 1960s, America's core corporations could no longer set their prices. They were now subject to fierce foreign competition. What to do? One strategy was to do precisely what they had done 100 years before: try to keep cheap foreign products out
of the American market.

The protectionist strategy failed. Protectionist walls ceded the rest of the rest of the world's markets to foreign producers, who could gain vast scale efficiencies by selling their goods everywhere but the US.

Nor, finally,
did protection enhance the standard of living of most Americans. To the contrary, it caused them to pay extra for what they purchased. The "voluntary" export restraints on Japanese cars that temporarily helped the Big Three automakers maintain their
profits (but not their work forces) through the 1980s cost American consumers about $1 billion a year more than they would have paid for cars had the American market been open.

US corporations push for "voluntary quotas" by competitors

[Besides American corporations arguing against "dumping"], it was argued that foreign producers were being subsidized by their governments, hardly a stinging accusation in light of all the unrestrained largess--research grants, defense contracts,
outright bailouts--flowing from the US government to American corporations.

Rarely did such alleged "unfairness" prompt the US to erect unilateral quotas or tariffs, which, after all, would have violated the General Agreement on Tariffs and Trade.
The more common tendency was for the foreign perpetrators to agree "voluntarily" to limit their exports to the US--voluntarily, that is, in the narrow sense that they acquiesced in the full knowledge that they would suffer a worse
fate--a more severe quota, directed only at them--were they to refuse to do so.